The Czech National Bank assumes that market interest rates will remain at their current very low level.
The most recent forecast of the Czech National Bank Board assumes that market interest rates will stay flat and the exchange rate will be used as a monetary policy instrument until mid-2017. The board members agreed that the risks to the new forecast were balanced.
The Board also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed the CNB’s commitment to intervene in the foreign exchange market if needed to weaken the exchange rate so as to keep the exchange rate of the Czech koruna close to 27 to the EUR.
The main findings of the current forecast are:
- Domestic inflation had been 0.3% on average in Q2 2016, 0.2 percentage point lower than in Q1.
- The GDP had slowed to 3% in Q1 2016, mainly because of subsiding growth in government investment financed by EU funds from the previous programme period.
- Inflation will slightly exceed the 2% target at the monetary policy horizon, i.e. in Q3 and Q4 2017, and then return to the target from above.
- After the drop in government investment unwinds, economic growth will pick up to 3% next year amid still robust household consumption. The economy will then grow at the same pace in 2018.
- The Board stated again that the CNB will not discontinue the use of the exchange rate as a monetary policy instrument before 2017. The Board still considered it likely that the commitment will be discontinued in mid-2017.
- The newly published data confirmed the positive tendencies in the domestic economy and that the new forecast was more optimistic than the previous one in terms of fulfilling the monetary policy mandate, i.e. hitting the inflation target. The positive supply shocks from abroad, which were causing the current low inflation, would gradually subside. However, it was said that any further deepening of the decline in import prices would represent an additional downside risk to inflation because of the potential pass-through of the undesirable second-round effects to domestic inflation.
Contact:
Veronika Honcová
Relationship Manager
T: +420 955 960 055
veronika.honcova@unicreditgroup.cz